Series 63: Ch 3 Q&A

If an agent violates the Uniform Securities Act, the Administrator may NOT: - Release information about the violation on its Web site - Arrest suspects if they refuse to cooperate with an investigation - Subpoena a witness - Administer an oath

Arrest suspects if they refuse to cooperate with an investigation The Administrator is not a law enforcement officer. However, the Administrator has the ability to subpoena witnesses, administer oaths, and release information regarding violations to increase investor awareness.

An order ticket must include all of the following information, EXCEPT: - The account for which the order was entered - The price and time at which it was executed - The time of entry - Authorization of a registered principal

Authorization of a registered principal An order ticket must include the client's account number, the time and price at which the order was executed (to the extent feasible), and the time the order was entered. A registered principal is not required to approve all orders before they are executed but is required to review all orders afterward

Which of the following communications would be exempt from the sales literature and advertising filing requirements of the Uniform Securities Act? - A brochure on U.S. Treasury securities - A form letter used to prospect for small business retirement plans - An ad espousing the tax advantages of condominium investments - A group e-mail sent to several existing clients explaining the advantages of annuity investing

- A brochure on U.S. Treasury securities The Administrator may require the filing of sales literature and advertising for nonexempt securities. Ads concerning exempt securities (such as Treasuries) are not subject to the filing requirements under the USA. Individual correspondence is not subject to filing with the Administrator, but form letters and group e-mails that are considered sales literature, must be filed.

Which of the following statements is NOT TRUE regarding licensing and registration standards for broker-dealers? - The Administrator may require that a broker-dealer have a minimum net capital as a condition of registration - A broker-dealer must notify the SEC that it intends doing business in a state before it can transact any business - The Administrator may require registered broker-dealers to post bonds and may determine their conditions - The Administrator may provide for a qualification examination, which may be written, oral, or both

- A broker-dealer must notify the SEC that it intends doing business in a state before it can transact any business Licensing and registration standards for broker-dealers do not include SEC notification of intent to transact business in a particular state. All of the other choices are correct

Which of the following investment advisory practices are permitted? - A client's portfolio increases in value from $100,000 to $150,000 over a one-year period and the adviser charges the client a fee of only 1% of the $50,000 increase - An investment advisory firm is purchased by a large broker-dealer and all client contracts will remain in force as long as the terms of the contracts are not altered - An investment advisory firm appoints three new senior partners and, for competitive reasons, it does not disclose this to anyone - A client terminates an advisory relationship with an investment adviser halfway through the contract and the advisory firm refunds 50% of all prepaid fees, as called for in the contract

- A client terminates an advisory relationship with an investment adviser halfway through the contract and the advisory firm refunds 50% of all prepaid fees, as called for in the contract Investment advisory contracts must provide that: The adviser will not be compensated on the basis of a share of the capital appreciation of the account. The adviser may not assign client contracts without the consent of the client. If the adviser is a partnership, clients will be notified of changes in the partnership within a reasonable period of time.

All the following descriptions would meet the definition of agent under the Uniform Securities Act, EXCEPT: [CHOOSE ALL THAT APPLY] - A sales representative of a broker-dealer who sells only securities covered under a federal exemption - An assistant to a sales agent who takes orders when the agent is not available - A subsidiary of a bank, registered as a broker-dealer that sells nonexempt securities to the public - A broker-dealer that sells only exempt securities within the state

- A subsidiary of a bank, registered as a broker-dealer that sells nonexempt securities to the public - A broker-dealer that sells only exempt securities within the state By definition, an agent is an individual and not a firm. Choices (III) and (IV) are both firms, not individuals. A sales agent of a broker-dealer is, by definition, an agent. It does not matter whether the securities are covered under a federal exemption or not. If administrative personnel are authorized to take orders, they are agents.

According to the Uniform Securities Act, which of the following investment advisers would be exempt from registration? - An adviser with no place of business in the state, with 10 clients, all of whom are accredited investors - An adviser with no place of business in the state and only six clients who have a net worth of at least $1 million each - An adviser with no place of business in the state and fewer than six retail clients - An adviser with an office in the state, with five or fewer retail clients

- An adviser with no place of business in the state and fewer than six retail clients There is no investment adviser exemption based on net worth in the Uniform Securities Act. (In federal securities law, there is a securities registration exemption for private placements to accredited investors.) If an adviser does not have a place of business in a particular state and limits clientele to institutional investors (or no more than five retail investors), the adviser is exempt from registration.

All of the following documents may need to be filed with the Administrator, EXCEPT: - A prospectus for a limited partnership - A pamphlet for an oil and gas program - A brochure for a mining company - An offering circular for an endowment policy

- An offering circular for an endowment policy The Administrator may require the filing of sales and advertising literature for securities investments. Limited partnerships, oil and gas programs, and mining companies issue securities. Endowment policies are insurance products, not securities.

An agent's registration package should include the application and the: - Consent to Service of Process, filing fees, and a mandatory arbitration agreement - Consent to Service of Process, filing fees, and credit report - Consent to Service of Process and the results of her FINRA qualifying exam - Consent to Service of Process and filing fees

- Consent to Service of Process and filing fees When applying for registration, an agent must submit an application, the Consent to Service of Process, filing fees and, in some cases, post a bond. If the registration were for a broker-dealer or investment adviser, in addition to the aforementioned requirements, the Administrator may also require that the applicant submit a balance sheet.

Under the Uniform Securities Act, the amount of the bond that a broker-dealer is required to post is: - Determined by the Administrator - Deposited with the custodian - Related to prior disciplinary actions - Set by the broker-dealer's SRO

- Determined by the Administrator The Administrator determines the amount of the bond that a broker-dealer must post. The Administrator is allowed to waive the bond requirement if the broker-dealer has a minimum amount of net capital. There is no requirement to deposit an amount equal to the bond requirement with a custodian, nor is the bond based on disciplinary actions. An SRO—for example, FINRA—does not determine the amount of a bond

A broker-dealer must keep all the following records, EXCEPT: - Original copies of all incoming client correspondence - Form ADV for any investment adviser for which the broker-dealer provides safekeeping services - Signed copies of all discretionary account agreements executed by clients - Copies of all order tickets

- Form ADV for any investment adviser for which the broker-dealer provides safekeeping services According to the Securities Exchange Act of 1934 (Rules 17a-3 and 17a-4), a broker-dealer must keep all these records except for Form ADV. Investment advisers who have custody of client assets must place these assets with a qualified custodian for safekeeping (such as a broker-dealer) and must notify the regulators that it has custody using Form ADV

H&H Securities is a broker-dealer registered in State B. Several material pieces of information contained in the documents it filed with the Administrator have recently become inaccurate as the result of a merger. What must H&H do in order to comply with the USA? - H&H must cease doing business until a new registration application is approved by the state - H&H must file an amendment promptly with the Administrator of State B - H&H should e-mail the Administrator's office, but is not required to update its previous filings until December 31 - H&H has a 90-day grace period to submit an amendment to the Administrator of State B

- H&H must file an amendment promptly with the Administrator of State B According to the Uniform Securities Act, if the information contained in any document filed with the Administrator becomes materially inaccurate or incomplete, an amendment must be filed by the registrant promptly

Bonds may be required of all of the following entities, EXCEPT: - Investment advisers who do not have discretionary authority or custody of client funds or securities - Investment advisers who have discretionary authority but do not have custody of client funds or securities - Broker-dealers who do not have discretionary authority - Broker-dealers who have discretionary authority

- Investment advisers who do not have discretionary authority or custody of client funds or securities Investment advisers may need to post a bond if they have discretionary authority over client accounts or have custody of client funds or securities. A bond guarantees that funds are available so that legal fees and fines can be met, if assessed against a broker-dealer or investment adviser. The bond is waived if the investment adviser meets certain minimum financial requirements, determined by the Administrator. Broker-dealers often have custody of client assets (although this is not universal). Broker-dealers who have custody or discretion over client accounts may also be required to post a bond. Generally, most broker-dealers have custody of client funds. Again, the Administrator may waive this bonding requirement if the broker-dealer's net capital exceeds a specified amount, which is determined by the Administrator.

Under the Uniform Securities Act, an institutional investor: - Has a minimum of $1.5 million invested in securities - Has a minimum of $100 million under management - Is designated by rule or order of the Administrator - Is anyone who falls under the definition of an accredited investo

- Is designated by rule or order of the Administrator According to Section 201(c) of the Uniform Securities Act, an institutional investor is an investment company, investment adviser, broker-dealer, bank, trust company, savings and loan, insurance company, employee benefit plan with at least $10,000,000 of assets, government entities, or any other entity designated by rule or order of the Administrator. Accredited investors are defined in federal law (Regulation D), not the Uniform Securities Act.

According to the Uniform Securities Act, if an advisory firm concentrates its advice on New York Stock Exchange securities, the firm: - Can seek an exemption from registration as an adviser - Will be subject to the rules of the New York Stock Exchange - Is not engaging in a violative practice - Can only receive commissions as compensation

- Is not engaging in a violative practic There is nothing wrong with giving advice that is limited to NYSE issues. Only members of the NYSE are subject to its rules

Which of the following statements is TRUE regarding the bond that is required to be posted under the Uniform Securities Act as a condition for registration? - It protects clients against losses - It protects against brokerage firm fraud - It is used to cover the costs of possible legal actions - Property can be accepted in lieu of a bond

- It is used to cover the costs of possible legal actions A bond may be required by an Administrator to cover possible legal costs arising from violations of the Uniform Securities Act. The Administrator may accept cash or securities in lieu of a bond but property may not be accepted. This type of bond is sometimes called a surety bond as opposed to a fidelity bond, which protects a brokerage firm from employee fraud, such as embezzlement.

Under the Uniform Securities Act, which of the following persons becomes registered automatically as an investment adviser representative when the investment adviser's registration becomes effective? - Only individuals who have been investment adviser representatives in another state - All officers, directors, and partners of the investment adviser - Only those officers, directors, and partners with management responsibilities - None of the above

- Only those officers, directors, and partners with management responsibilities Only those officers, directors, and partners with management responsibilities (i.e., not silent partners) become automatically registered as investment adviser representatives when the firm registers in a new state as an investment adviser.

According to the Uniform Securities Act, which of the following actions accomplishes renewal of an agent's license? - Participation in Continuing Education - Passing an examination - Paying a fee - Making an announcement in a publication distributed in that state

- Paying a fee An agent renews his license by paying a fee designated by the Administrator. Passing an examination is generally only required for an agent's initial registration. (FINRA does impose a mandatory Continuing Education on all registered personnel, but this is not a state requirement.)

A broker-dealer is registered in State X, but not in State Y. The firm does not have an office in State Y, but does have some institutional clients in that state. The agent who handles these accounts has developed several contacts in State Y and wants to begin soliciting retail clients in State Y. The agent consults the Compliance Department. A new employee in that department tells the agent that he may solicit retail clients in State Y since he is exempt from registration in that state. What should the agent do? - Begin contacting clients in State Y immediately since the agent has the approval of the broker-dealer - Tell the registration department to begin the application process since the agent and the broker-dealer will need to register in State Y once the agent has five retail clients there - Refrain from soliciting retail clients in State Y until the agent and the broker-dealer are registered in State Y - Begin soliciting retail clients in State Y immediately since the agent is exempt from registration in that state as long as he does not maintain an office there

- Refrain from soliciting retail clients in State Y until the agent and the broker-dealer are registered in State Y BECAUSE they can operate in state Y without being registered if the agent / B/D has 5 or fewer clients, but they CANNOT solicit business without being registered in state Y Generally, both the broker-dealer and its agent must be registered in a state before they may do business there, which includes soliciting clients. There is an exemption for broker-dealers and their agents who do not have an office in the state and do business only with certain institutional clients, such as other broker-dealers, banks, savings institutions, trust companies, insurance companies, investment companies, or pension plans. In this question, the agent loses this exemption once he begins to solicit retail clients in State Y. Both the broker-dealer and the agent need to register in State Y before the agent may begin soliciting retail clients in that state.

Which of the following documents must be filed with the state Administrator for registration of all broker-dealers, investment advisers, agents, and investment adviser representatives? - Form U4 - Form ADV Parts 1 and 2 - The Consent to Service of Process - Fingerprint cards for all registered employees

- The Consent to Service of Process The Consent to Service of Process appoints the state Administrator to serve as the applicant's attorney for the purpose of receiving and processing noncriminal complaints. It is required of all registrants when they file for registration in a state. The other forms listed may or may not be filed by certain persons, but the Consent to Service of Process is the only form that is required of ALL persons.

An agent opens a new account for a client and enters a market order to buy 200 shares of XYZ. At the end of the day, the agent turns in a new account form and a copy of the order ticket for approval by the supervisor. Which of the following statements is TRUE? - The agent's activities are not prohibited - The agent needed approval for the new account prior to the execution of the first order - The activity is prohibited and the agent must get prior approval for every order - The activity is prohibited because new clients must pay for their first transaction in advance

- The agent needed approval for the new account prior to the execution of the first order Although prior approval from a supervisor is not required for every order, every new account must be approved by a supervisor prior to the execution of the first order

Which of the following statements is NOT TRUE about federal covered advisers? - They are not subject to registration as investment advisers under the Uniform Securities Act - They are not subject to state record-keeping requirements - They are not subject to the antifraud provisions of the Uniform Securities Act - Investment adviser representatives of federal covered advisers can be required to register in a state if they have a place of business there

- They are not subject to the antifraud provisions of the Uniform Securities Act The antifraud provisions of the Uniform Securities Act cover "all persons," including federal covered advisers.

Rick and his brother Dave both work as agents for Broker-Dealer N, which is located in State J. Rick has been called by an old college buddy in the next state (State H) who wants to set up an account and buy some stock. However, Rick is not registered in that state, although Dave and Broker-Dealer N are. Rick proposes that Dave set up the account and split the customers' commissions. Which of the following statements is TRUE? - This is permissible since the agents are registered with the same broker-dealer - This is permissible since the agents are related - This is not permissible since Rick is not registered in State H - Commission-splitting is not permissible under any circumstance

- This is not permissible since Rick is not registered in State H Since Rick is not registered in State H, he would not be entitled to split commissions. However, if Rick were properly registered, splitting commissions would be possible

Which TWO forms must an agent obtain from a client in order to purchase securities in a margin account? A signed hypothecation agreement A signed loan consent agreement A signed credit agreement A signed new account form

1) A signed hypothecation agreement 2) A signed credit agreement An agent of a broker-dealer must obtain from a client written authorization to open a margin account at a broker-dealer. It is considered an unethical business practice for an agent to allow a client to execute transactions in a margin account without the client's written authorization. The client would sign a document referred to as a margin agreement, which would include an hypothecation agreement and a credit agreement. A loan consent agreement is not mandatory. Clients are not required to sign new account forms.

When trading on margin, clients are required to deposit: 50% of the market value of the security 50% of the amount of money borrowed 25% of the market value of the security 25% of the amount of money borrowed

50% of the market value of the security ****Regulation T of the 1934 Act provided the Federal Reserve with the power to establish equity requirements when trading on margin. The current initial requirement when purchasing common stock is 50% of the market value of the security at the time of the transaction

According to the Uniform Securities Act, which of the following entities or individuals must register as a broker-dealer in State A? - The trust department of a bank located in State A - A financial planner located in State A - A broker-dealer located in State B, that occasionally effects transactions for clients vacationing in State A - A company incorporated in State A that processes transactions for other financial institutions

A company incorporated in State A that processes transactions for other financial institutions An entity that effects securities transactions for its own account or the accounts of others is defined as a broker-dealer. Incorporating in a state means a firm agrees to abide by that state's laws and is domiciled in that state. Although choice (c) is a broker-dealer in State B, it does not need to register in State A since it is doing business only with existing customers who are in State A temporarily. Choice (b) would probably need to register as an investment adviser. Trust departments of banks, choice (a), are excluded from the definition of a broker-dealer under the USA

According to Regulation T of the 1934 Act, when opening a margin account, which of the following documents must be obtained? A loan consent form A hypothecation agreement A margin account form Trading authorization LIST ALL THAT APPLY

A loan consent form A hypothecation agreement A margin account form All of the documents listed are required when opening a margin account. Trading authorization is not required

According to the Uniform Securities Act, which of the following persons must register with the state Administrator? - A person who represents a non-exempt issuer in sales to the public - A person who represents an exempt issuer in sales to the public - A person who represents a non-exempt issuer in an investment banking transaction with a broker-dealer - A person who represents a non-exempt issuer in sales to existing employees, and is not compensated

A person who represents a non-exempt issuer in sales to the public Persons who represent exempt issuers are not defined as an agent so there is no need for registration. Persons who represent non-exempt issuers in sales to the public are defined as agents and must be registered whether or not they receive compensation. Persons who represent non-exempt issuers in sales to existing employees are only defined as agents (and must be registered) if they receive compensation related to the transaction(s). Choice (c) is an example of an exempt transaction. In this case the person is not defined as an agent so no registration is required.

Under the Uniform Securities Act, which of the following persons engaged in the business of advising others regarding securities investments is NOT excluded from the definition of an investment adviser? - A bank, savings institution, or trust company - A licensed broker-dealer whose advice is incidental to its business - A person whose advice relates only to exempt securities - None of the above

A person whose advice relates only to exempt securities This is an example of a question that must be read very carefully. When you are asked "Who is NOT excluded?" you are essentially being asked, "Which one of these might be considered an investment adviser?" ("Not excluded" means "Which ONE of the following".) ***The Uniform Securities Act does not provide an exclusion for persons whose advice relates only to exempt securities. They are still covered under the definition of an investment adviser*** Persons (entities) who are banks, savings institutions, or trust companies are not considered investment advisers and, consequently, do not need to register as investment advisers. Broker-dealers whose investment advisory services are incidental to their normal course of business, and who receive no special compensation for the advice, are exempt from registration as investment advisers

Which of the following choices would be required to register as a broker-dealer in State B? - A broker-dealer with no offices in State B and whose only clients are other financial institutions - A regional broker-dealer with offices in States A, C, D, and E only, and five retail clients who reside in State B - An employee of ACDE Securities, who handles client accounts - A corporation that issues stock to the public

A regional broker-dealer with offices in States A, C, D, and E only, and five retail clients who reside in State B A regional broker-dealer would be required to register as a broker-dealer in State B since it has retail clients located there. A broker-dealer with no place of business (office) in a state, whose only clients in the state are institutions, is not defined as a broker-dealer in that state. Therefore, the broker-dealer in choice (a) does not need to register in State B. The employee in choice (c) is an agent of ACDE Securities, not a broker-dealer. She may need to register in State B as an agent if she has retail clients residing there. The corporation in choice (d) is an issuer, not a broker-dealer

Which of the following choices would be considered an investment adviser? - A banker recommending certificates of deposit to her retail clients - A lawyer who offers advice on estate planning - An engineer who provides advice for a municipality regarding feasibility studies - A teacher who works part-time as a financial planner

A teacher who works part-time as a financial planner Any person engaged in the business of advising others as to the value of securities, for compensation, would be considered an investment adviser and generally would be required to be registered. In this case, the teacher works part-time. The implication of someone working is that he is being compensated for his activities. The other choices are excluded from the definition of an investment adviser

Under the Uniform Securities Act, which of the following statements is NOT TRUE concerning the state registration of an agent? - An agent may only sell securities that have been properly registered in a state or qualify for an exemption from registration - An agent's registration to sell securities in a given state expires at the end of the broker-dealer's fiscal year - An agent may only solicit business in a state if both the agent and broker-dealer are registered in that state - If an agent leaves a broker-dealer to go to another broker-dealer, the agent and both broker-dealers must notify the Administrator of the change

An agent's registration to sell securities in a given state expires at the end of the broker-dealer's fiscal year The licenses of all agent, broker-dealer, investment adviser, and investment adviser representatives expire on December 31 each year and must be renewed in order to be effective. Renewal is accomplished by the payment of a filing fee

An agent may split commissions with which of the following people? - An agent of the same firm licensed in another state - An insurance company officer giving the agent business - An agent of another firm licensed in the same state - Another licensed agent of the same firm licensed in the same state

Another licensed agent of the same firm licensed in the same state The Uniform Securities Act allows for the splitting of commissions provided that the agents involved are employed by the same firm and are registered in the same state.

Under what circumstances may an agent registered in State A sell securities to an investor who is a resident of State B? -Both the agent and broker-dealer are registered in that state - The security is exempt from registration in State B and the agent receives no compensation - The security is exempt from registration in State B and the order is unsolicited - The investor states that he is in the process of moving back to State A

Both the agent and broker-dealer are registered in that state In order for an agent to sell securities to a resident of another state, both the agent and broker-dealer must be registered in that state. This question concerns the agent's registration, not the security's. Compensation is irrelevant. Until the investor actually establishes residency in State A, he is still a resident of State B

An investment adviser is registered in State A, where all of its offices are currently located. One of its representatives lives in State B and is in the process of opening a satellite office there to see if she can attract more clients in State B. Right now, the adviser's only clients in State B are institutions. What must take place before the IAR may commence doing business from her new office? - The investment adviser must register in State B - The investment adviser representative must register in State B - Both the investment adviser and the investment adviser representative must register in State B - Neither the investment adviser nor the investment adviser representative needs to register in State B since the firm's only clients there are institutions

Both the investment adviser and the investment adviser representative must register in State B An adviser with no place of business in a state and whose only clients in that state are institutions does not need to register there. In this case, however, the adviser loses the exemption as soon as it opens an office in State B. Both the adviser and its representative must register in State B before the IAR may start soliciting clients from his new office

Which of the following statements is NOT TRUE concerning the registration requirements of securities professionals? - Broker-dealers with no place of business in a state and a limited number of noninstitutional clients in a state must register - Broker-dealers with no place of business in a state, who limit their agents to selling exempt securities in a state, need not register - Investment advisers with no place of business in a state and whose only clients are institutional investors in the state need not register - Investment advisers with no place of business in a state and a limited number of noninstitutional clients need not register

Broker-dealers with no place of business in a state, who limit their agents to selling exempt securities in a state, need not register ***There is never an exemption from registration for broker-dealers even if they have no place of business in a state and limit their agents' activities to selling exempt securities. It is the securities that are exempt, not the agents or the broker-dealer selling those securities. Choice (b) is definitely a false statement. Choice (a) is a true statement. Broker-dealers must always register. Choice (c) is a true statement. In this situation, the investment adviser is exempt from registration. Choice (d) is tricky, because it is a little vague. What does it mean to say "a limited number of noninstitutional clients"? This sort of situation is common on regulatory exams. Remember, investment advisers with no place of business in a state may still do business in that state without registering, ***provided they limit their advice to institutional clients or no more than five noninstitutional clients in that state.*** That is a limited number. While there is an assumption taking place here, (d) is not the best choice compared to choice (b), which we know is always false.

An agent holding limited discretionary authority over a customer's account may: - Buy or sell securities in the account without consulting the customer - Withdraw money from the account - Receive a fee for using his discretion in trading the account - Borrow assets from the customer's account

Buy or sell securities in the account without consulting the customer An agent holding limited discretionary authority over a customer's account may buy or sell securities in the account without consulting the customer. ***Only full discretionary authority allows an agent to withdraw money from a client's account.*** An agent may not receive a fee for using his discretion in trading a customer's account. Borrowing client assets is never allowed

An order ticket must include all of the following information, EXCEPT the: - Account number for which the order was entered - Price and time at which it was executed - Time of entry - Client's name

Client's name An order ticket must include the client's account number, the price and time at which the order was executed, and the time the order was entered (to the extent feasible). While there must be some designation identifying which account the order is for, it can be an account number or some other designation. The client's name is not a specific requirement

An agent's registration is: - Considered an indication that the Administrator considers those securities sold by the agent to be properly registered - Transferrable to another broker-dealer without filing a new Form U4 as long as the agent is sponsored within 30 days - Effective only during the period in which the agent is associated with a properly registered broker-dealer - Effective in all states where the broker-dealer is registered or where the broker-dealer's registration is pending

Effective only during the period in which the agent is associated with a properly registered broker-dealer An agent's registration is effective only during the period in which the agent is employed by a properly registered broker-dealer. An agent may not transact business unless associated with a broker-dealer. An agent's registration has no impact on the registration of securities, choice (a), nor can it be transferred without filing Form U4. An agent is not registered automatically in every state in which his employer, the broker-dealer, is registered

According to the Uniform Securities Act, an Administrator is NOT allowed to demand that broker-dealers do which of the following? - Approve their advertising prior to use - Ensure that their advertising is maintained and available for inspection - File their advertising related to federal covered securities with their state Administrator prior to use - Review their advertising for accuracy prior to use

File their advertising related to federal covered securities with their state Administrator prior to use According to the Uniform Securities Act, all advertising used by a broker-dealer must be supervised and checked for errors. They are also required to keep a file that is subject to audit by the Administrator. However, the Administrator does not regulate advertising that addresses only federal covered securities.

The Uniform Securities Act requires investment advisory firms to keep their books and records for: Five years Three years Two years One year

Five years Investment advisory firms are required to keep books and records for a minimum of five years, according to the Uniform Securities Act

Under the Uniform Securities Act, which of the following activities of an investment adviser would constitute impersonal advisory services? - Telling a client to buy municipal bonds in order to reduce her tax liability - Providing clients with a recommended list of mutual funds for their retirement accounts - Giving a client a list of mutual funds with the lowest expense ratios for the past five years - Telling a client that investment XYZ will meet her investment objectives

Giving a client a list of mutual funds with the lowest expense ratios for the past five years Impersonal advisory services are those activities of an investment adviser that do not meet the specific needs or objectives of a client, or which do not render an opinion of the investment merits of a particular security

The Uniform Securities Act requires that an investment adviser deliver a written disclosure document to an advisory client or prospective advisory client. In which TWO of the following situations is the adviser NOT required to send this document to clients? - The firm advises only investment companies but does not send its brochure to them - The firm sends a newsletter to subscription clients who pay an annual fee of $120 - The firm has no office in the state - The firm advises only institutional investors I and II II and III I and IV II and IV

I and II According to the Uniform Securities Act Rule 203, an investment adviser must give a client or prospective client a disclosure document (usually Form ADV Part 2) either 48 hours before or at the time of opening the account. Exceptions to this rule include an adviser whose clients are only investment companies or where the contract is for impersonal services for which the client pays a fee of less than $500. Please note, while an investment company is an institutional investor, not all institutional investors are investment companies. An investment adviser is required to provide the brochure to institutional investors other than investment companies. While there are many exemptions regarding institutional investors, this rule is NOT one of them

A client is traveling and would like her investment adviser representative to pay some personal bills while she is away. Under the Uniform Securities Act, such an activity: I) Should be backed up in writing II) Constitutes custody III) Falls outside the scope of securities market regulations I only I and II only II and III only I, II, and III

I and II only When an investment adviser has access to customer funds and securities, custody exists. Investment advisers would not normally pay personal bills such as rent, credit card, or cable television on behalf of their clients. Written authorization is required for this type of activity and usually is referred to as full discretionary authority. Custody arrangements are covered by securities regulations

Under the National Securities Markets Improvement Act (NSMIA) investment advisers are required to register at the state level or the federal level, unless exempt. Which TWO of the following statements are TRUE regarding investment advisers with $95 million of assets under management? I) They generally must register in any states in which they will conduct business. II) They are exempt from state registration. III) They must register with the SEC if the state in which they conduct business has no requirement for registration of investment advisers. IV) They generally must register with the SEC if their clients are all retail investors. I and II I and III I and IV II and III

I and III NSMIA, the National Securities Markets Improvement Act, was created to eliminate some of the dual requirements of federal and state securities law. Investment advisers with less than $100 million of assets under management (AUM) are generally exempt from federal or SEC registration and are required to register at the state level. If the state in which the adviser conducts business does not provide for the registration of investment advisers, they must register with the SEC. Investment advisers with AUM of $100 million up to $110 million may register with the SEC. If the adviser's AUM exceed $110 million, it must register with the SEC. An investment adviser registered with the SEC is referred to as a federal covered adviser

According to the Uniform Securities Act, which of the following statements is/are NOT TRUE concerning a broker-dealer or investment adviser filing an application for registration as a successor firm? I) The successor firm must be in existence prior to the filing of the application for registration II) The successor firm's registration will be effective for the unexpired portion of the year III) The successor firm must submit a filing fee with the application for registration II only III only I and II only I and III only

I and III only If a registered broker-dealer's or investment adviser's ownership structure is changed (from a partnership to a corporation, for example), or is bought or sold by another person, it is permitted to file an application for registration as a successor firm. According to the Act, this can be accomplished whether or not the successor firm was in existence prior to the filing and is effective for the unexpired portion of the year. A filing fee is not required when the application is submitted

All order tickets must include which information? i) Whether the order was solicited or unsolicited ii) The time and price at which the order was executed iii) The time at which the order was received and entered iv) The account for which the order was entered I and II I, II, and III II, III, and IV I, II, III, and IV

I, II, III, and IV All order tickets must contain: - The terms and conditions of the order (e.g., limit order, market order, etc.) - Whether the order is solicited or unsolicited - The account name or designation for which the order is entered - The identity of the registered representative (if any) responsible for the account - The identity of anyone else who accepted or entered the order for the client - Whether the order involved the exercise of discretionary authority - The time at which the firm received the order - The time and price at which the order was executed, or modified or cancelled (to the extent possible)

An agent for Broker-Dealer A terminates employment and is hired by Broker-Dealer B in the same state. Who must notify the Administrator of these changes? I) The agent II) Broker-Dealer A III) Broker-Dealer B II only I and III only II and III only I, II, and III

I, II, and III

Under the Uniform Securities Act, a state's Administrator may require the filing of which of the following documents by rule or order? I) Form letters II) Pamphlets and/or circulars III) A prospectus I and II only I and III only II and III only I, II, and III

I, II, and III The state Administrator may require all of these items to be filed as long as they do not involve federal covered securities, exempt securities, or securities sold as part of an exempt transaction.

A newly hired employee is applying for registration as an agent in State Z. What information does the agent need to disclose on his application for registration (Form U4)? I) Any alias that the agent has used II) A real estate partnership that the agent controlled that declared bankruptcy five years ago III) The agent has an unsatisfied judgment against him as the result of an auto accident IV) The fact that the agent's house is in foreclosure I and II only II and III only I, II, and III only I, II, III, and IV

I, II, and III only An applicant for registration must disclose any alias used, choice (I). The applicant must also disclose any personal bankruptcies or bankruptcies of entities that he controlled during the last 10 years, choice (II), and unsatisfied judgments, choice (III). Tax liens must also be reported. A foreclosure is not a reportable item on Form U4

An Administrator who requires the posting of a bond may: I) Accept cash II) Accept securities III) Use discretion as to whether the type of securities and the amount of the deposit are appropriate IV) Use discretion whether to accept a deposit of cash or securities instead of a bond I only I, II, and III only I, II, and IV only I, II, III, and IV

I, II, and III only The state Administrator may accept a deposit of cash or securities in lieu of a bond. The Administrator may determine the type of securities acceptable for deposit but may not altogether disallow deposits of securities in lieu of a bond.

Under the Uniform Securities Act, an investment adviser who has no place of business in a state is exempt from registration in that state if the adviser provides advice in which of the following situations? I) The adviser had no more than five clients in that state within the last 12 months II) The adviser had no more than 15 clients in that state within the last 12 months III) The adviser provided advice only to investment companies in that state IV) The adviser provided advice only to insurance companies in that state I and IV only II and IV only III and IV only I, III, and IV only

I, III, and IV only An adviser whose clients are all institutions or who has no more than five clients in a state is exempt from registration, provided that the adviser has no place of business in that state.

Paul is an investment adviser representative for Bruce Asset Management, a federal covered investment adviser. Although Paul's office is located in State A, he conducts business with clients from State A, State B, and State C. Which of the following choices reflect(s) the state registration requirements in this situation? I) Bruce Asset Management must be registered in State A II) Paul must be registered in State A III) Paul must be registered in State B and State C. IV) Bruce Asset Management must be registered in State B and State C I and IV only II only I, II, and III only I, II, III, and IV

II Only ***A federal covered adviser is an investment adviser that is required to register with the SEC. It is exempt from state registration in any state in which it transacts business although it is required to notify the states in which it is conducting business. This is why Bruce Asset Management does not need to register in any state. This rules out choices (I) and (IV). An investment adviser representative (IAR) of a federal covered adviser must be registered in the state in which the IAR maintains an office. Paul's office is in State A, the only state he needs to register in. Because he does not have an office in States B or C he does not need to register in either of them

According to the Uniform Securities Act, which TWO of the following statements are TRUE? I) When an agent's license is suspended, the broker-dealer will be sanctioned II) When an investment adviser's license is suspended, the investment adviser representative's license is no longer in effect III) When a broker-dealer is suspended, the agent's license is no longer in effect IV) When an investment adviser representative's license is suspended, the investment adviser will be sanctioned I and III I and IV II and III II and IV

II and III If an agent's license is suspended, the broker-dealer's registration remains intact. However, an agent's license is only effective when the broker-dealer's registration remains in effect. When an investment adviser's license is suspended, the investment adviser representative's license is no longer in effect. While it is possible that a firm MAY be sanctioned for a failure to supervise, this is not always true. Therefore, it is wrong to say that a broker-dealer or investment adviser will be sanctioned.

An insurance agent works in an office building down the hall from a broker-dealer. They are not affiliated. What compensation may the agent receive from the broker-dealer in exchange for referrals? - Discounted commissions - Insurance referrals - Commissions - 12b-1 fees

Insurance referrals Only individuals who are registered agents may receive monetary compensation from a broker-dealer based on the sale of a security. In this scenario, the insurance agent is not licensed and may not receive compensation in the form of commissions or fees, or soft-dollar compensation (noncash compensation) in the form of discounted commissions. If a broker-dealer wants to refer its clients to an insurance professional, this is permitted. Only licensed insurance professionals may be compensated for the sale of life insurance.

Which of the following statements is TRUE regarding custody of client funds and securities by investment advisers? - Investment advisers may not have custody of client funds and securities unless the adviser is also registered as a broker-dealer - Investment advisers must notify the Administrator if they have custody of client funds and securities - Custody of client funds or securities by an investment adviser is a violation of the Uniform Securities Act - The Administrator may not permit an investment adviser to have custody of client funds or securities unless the adviser has been in operation for at least 10 years

Investment advisers must notify the Administrator if they have custody of client funds and securities Investment advisers must notify the Administrator if they have custody of client funds and securities. The Administrator has the power to permit or deny an adviser from maintaining custody of client funds and securities.

Under the Uniform Securities Act, which of the following statements is TRUE regarding a surety bond posted by a broker-dealer? - It is used for the same purpose as a fidelity bond required by the SEC - It is required of all broker-dealers registered in a state - It is used to cover the costs of possible legal actions - An Administrator may accept cash, securities, or real property in lieu of a bond

It is used to cover the costs of possible legal actions A bond may be required by an Administrator to cover possible legal costs arising from violations of the Uniform Securities Act. The Administrator may accept cash or securities in lieu of a bond, but property may not be accepted. A surety bond is not required of all broker-dealers, only those that have custody of or discretionary authority over client funds and securities and do not meet minimum financial requirements

Allied Advisory Services is a registered investment adviser with its home office in the state of Virginia. The minimum financial requirement for an investment adviser in Virginia is a net worth of $50,000. The firm would like to open an office and provide advisory services in Maryland. However, the minimum net worth requirement in Maryland is $100,000. What action should the firm take in order to open an office in Maryland? - Increase its net worth by another $50,000 - Increase its net worth to $150,000 to cover both states - Leave its current net worth as is - Post a $50,000 bond to cover the additional requirement in Maryland

Leave its current net worth as is According to the Uniform Securities Act, the minimum financial requirements of the state where an investment adviser maintains its principal place of business sets its registration requirements. No other state may impose higher requirements than the adviser's home state. Since Allied is already registered in Virginia, it is assumed that is its principal state, and that it has already met the net worth requirements ($50,000). As a result, Allied cannot be forced to meet Maryland's requirement of $100,000

Roberta Smith has passed the Uniform Securities Agent State Law Examination but has not been granted registration by the Administrator. She may participate in: - Prospecting personally - Prospecting by mail only - Accepting unsolicited orders only - None of the activities of an agent

None of the activities of an agent Until the Administrator grants registration, an applicant who has passed the Uniform Securities Agent State Law Examination may not transact any business

LMRT is a broker-dealer registered in State J. An existing client of the firm who is a resident of State J is on a ski vacation in State C. Under the Uniform Securities Act, if a securities transaction is effected with the client in State C, LMRT would: - Need to register as a broker-dealer in State C - Not need to register as a broker-dealer in State C if the agent selling the securities was registered in State C - Not be required to register as a broker-dealer in State C if the client signed an agreement - Not be required to register as a broker-dealer in State C if it has no office there

Not be required to register as a broker-dealer in State C if it has no office there Since the client's permanent residence is in State J, the trade is valid. LMRT does not need to register in State C because it does not have an office there and the transaction is with an existing client who is in the state temporarily.

An agent who is registered in State A contacts a client in State B. The broker-dealer is registered in State B but not the agent. The agent may: Not sell the security Sell the security if it is a federal covered security Sell the security upon notification to a superior Sell the security because this is an exempt transaction

Not sell the security In order to sell a security in a state, the broker-dealer and the agent must both be registered in the state. Therefore, the agent may not sell the security

You are the chief financial officer of Colfax Advisers, LLC, a registered investment adviser located in Dallas, Texas. Your firm manages portfolios and has safekeeping services for its clients. The state of Texas requires that all registered advisers who have custody of client assets, maintain a minimum net worth of $35,000. In reviewing the month-end financials for the firm, you calculate the current net worth at $32,875. What would your best course of action be considering these circumstances? - Increase net worth to $35,000 and notify the Administrator of the increase - Notify the Administrator and post a $35,000 bond - Cease operations in the state and file a notice of withdrawal - Notify the Administrator within one business day and file a statement of financial condition

Notify the Administrator within one business day and file a statement of financial condition If the investment adviser's net worth drops below the required minimum (as set by the Administrator), the adviser must file a deficiency notice with the Administrator within one business day and also file a report on its financial condition.

A broker-dealer agent enters an order ticket for a customer. The order ticket must contain all of the following information, EXCEPT the: Time of entry Price of the security at the time of receipt Price of the security at the time of execution Agent's identifying information

Price of the security at the time of receipt An order ticket does not need to include the price of the security at the time the order was received. It does need the price at the time it was executed as well as the time of execution (or cancellation). The ticket should also identify the personnel (if any) responsible for the account and the specific individual who entered the order on the client's behalf.

The Administrator may require a broker-dealer to take all the following actions, EXCEPT: - Maintain a minimum net capital - Register all its employees as agents - Post a bond - Make its records available to the Administrator upon request

Register all its employees as agents Not all of a brokerage firm's employees necessarily need to be registered.

Which of the following activities require a CPA to register as an investment adviser representative under the Uniform Securities Act? - Recommending that a client invest in tax-free municipal securities - Providing advice about real estate for a fee - Providing advice about the value of precious metals - Soliciting advisory services on behalf of an investment adviser for a fee

Soliciting advisory services on behalf of an investment adviser for a fee Under the USA, third-party solicitors for an investment adviser may be required to register as an IAR. The Investment Adviser's Act of 1940 does not require registration of IARs. Recommending that the client buy municipal securities in general is incidental to giving tax advice. The other activities are not securities-related`

An investment adviser with no place of business in a state will not be required to register with the Administrator under which of the following conditions? - The adviser has not been the subject of any disciplinary action - The adviser has been in business for 10 years - The adviser will provide advice only to mutual funds - The adviser will provide advice only to 401(k) plans with assets of at least $500,000

The adviser will provide advice only to mutual funds An adviser with no place of business in a state who only provides advice to mutual funds (a type of investment company), other investment advisers, broker-dealers, banks, trust companies, insurance companies, saving and loan associations, and employee benefit plans such as a 401(k) where the minimum amount of the assets is $1,000,000, is exempt from registration.

A firm that is expecting to take its shares public has recently hired a new employee to assist in selling shares to investors. According to the Uniform Securities Act, which of the following statements is TRUE? - The employee does not have to be registered since the shares are being registered - The employee is automatically considered to be registered since he was hired before the firm registered - If the issuer is going to sell stock, it must first register as a broker-dealer - The employee would be required to register in any state in which he solicits investors

The employee would be required to register in any state in which he solicits investors In this question, the employee is considered an agent of the issuer. Since the stock is going to be sold publicly, the shares are required to be registered along with the employees of the issuer selling them. There are situations in which employees may be exempt from registration (e.g., engaged in exempt transactions) however, registration is generally required if shares are being sold to the public.

In order for an investment adviser to maintain custody of funds and securities: - The firm must have a three-year track record of no violations - The investment adviser must notify the Administrator and there must be no rule against custody - The Administrator must give permission to the investment adviser - At least $100,000 in Treasury bills must be posted as security

The investment adviser must notify the Administrator and there must be no rule against custody An adviser must notify the Administrator of its intention to maintain custody of client funds and securities. In some cases, an Administrator may adopt a rule prohibiting an investment adviser from taking possession.

A broker-dealer may need to file all of the following material with the Administrator, EXCEPT: - The prospectus for an oil and gas limited partnership - The marketing materials for a new issue of municipal bonds - The sales literature for an issue that will be sold within the Administrator's state only - A form letter distributed to an adviser's current clients explaining the benefits of a variable annuity

The marketing materials for a new issue of municipal bonds Generally, the Administrator may require the filing of "any prospectus, pamphlet, circular, form letter, advertisement or other sales literature or advertising communication" intended for distribution to investors or prospective investors. However, the Administrator may not require that sales materials related to exempt securities, exempt transactions, or federal covered securities be filed. Municipal securities, choice (b), are exempt securities. (75565) Generally, the Administrator may require the filing of "any prospectus, pamphlet, circular, form letter, advertisement or other sales literature or advertising communication" intended for distribution to investors or prospective investors. However, the Administrator may not require that sales materials related to exempt securities, exempt transactions, or federal covered securities be filed. Municipal securities, choice (b), are exempt securities.

ACE Investments is a registered investment adviser. Which of its employees are considered investment adviser representatives? The clerical staff The senior partners The portfolio managers The custodial staff

The portfolio managers an investment adviser representative includes anyone associated with an investment adviser who manages client accounts or portfolios, or makes investment recommendations or gives advice about securities. It also includes anyone who decides what type of investment advice to give to clients or who solicits or negotiates the sale of these services. Finally, it includes anyone who supervises personnel performing these job functions. Clerical and custodial staff, choices (a) and (d), would probably not be performing these functions. The senior partner, choice (b), might have these responsibilities or might be supervising people who are investment adviser representatives, but there is no indication in the question stem or the choices that this is the case at ACE Investments. Therefore, choice (c) is the best answer.

An agent tells his supervisor that 12 years ago, a company that the agent founded had to declare bankruptcy. The agent just discovered that the county has recently imposed a tax lien on rental property that he is refinancing. The agent is disputing the assessment. Which of the following issues is the agent required to disclose? CHOOSE ALL THAT APPLY The tax lien The bankruptcy The refinancing None of the above

The tax lien Registered personnel must disclose all unsatisfied judgments and tax liens on Form U4 within 30 days. (FINRA has fined and temporarily suspended people for failing to make these disclosures promptly.) The bankruptcy does not need to be disclosed since it occurred more than 10 years ago.

An agent misrepresents the risks associated with U.S. Treasury bills, notes, and bonds. Under the Uniform Securities Act, which of the following statements would BEST describe the consequences? - This is viewed as unethical - There are potential civil liabilities and the client may sue for damages - U.S. Treasuries are subject to federal jurisdiction and, therefore, any liabilities incurred because of the misrepresentation of risk would be handled through federal courts and the SEC, not through states under the Uniform Securities Act - Since these are exempt securities and not subject to credit risk, there is no potential misrepresentation of risk

There are potential civil liabilities and the client may sue for damages Misrepresenting the investment risks of a security could lead to civil liabilities, as clients have the right to sue to recover their losses. U.S. Treasury bills, bonds, and notes are securities and the fact that they are exempt securities is irrelevant if misrepresentations are made. Choice (a) is a true statement; however, it is fraudulent rather than unethical.

Which of the following statements is TRUE concerning the posting of bonds by a broker-dealer? - The bond may be waived if the broker-dealer has been in business for at least 10 years - There is no bond requirement if the broker-dealer does not have custody or discretionary authority - The Administrator may not waive the bond requirement for any broker-dealer - There is no bond requirement if the broker-dealer is registered in another state

There is no bond requirement if the broker-dealer does not have custody or discretionary authority Not every broker-dealer maintains custody of client assets. Some, for example, employ clearing firms to take care of this responsibility. The Administrator may require broker-dealers to post bonds if they have custody of, or discretionary authority over, client funds or securities. The bond is waived if the broker-dealer's net capital exceeds a specified amount. The Administrator may determine this amount.

Nick is an agent for Broker-Dealer S. He works primarily with institutional clients. Today he has taken a large number of orders from his clients for ABCD stock. The stock's price was very volatile during the day, resulting in many different execution prices on the orders. Nick was so busy that he did not have time to write the account names or numbers on the tickets before they were entered for execution. At the end of the day, he must decide which account numbers to write on the various tickets. He chooses to allocate the most advantageous prices to his best customers. Which of the following statements is TRUE? - This procedure is acceptable since it is a normal practice for broker-dealers to reward their best customers - This procedure is acceptable as long as none of the trades are allocated to the broker-dealer or its employees - This procedure is not acceptable since Nick should have completely filled out the ticket before entering each order - This procedure is not acceptable unless the clients were notified that the broker-dealer reserved the right to allocate trades in this manner

This procedure is not acceptable since Nick should have completely filled out the ticket before entering each order Order tickets must be prepared prior to order-entry.

An unregistered agent who is an employee of a licensed broker-dealer is allowed to sell exempt securities to the public: - Under no circumstances - If it is an exempt transaction - Because the security is exempt - If the employee is not paid a salary or commission

Under no circumstances An individual who sells securities (whether or not the securities are exempt) must be registered as an agent in order to sell such securities to the public for a licensed broker-dealer.

A broker-dealer is a syndicate member involved in a firm-commitment underwriting of a highly anticipated upcoming initial public offering (IPO). During the underwriting, the broker-dealer holds onto some of the shares in order to sell them at a later date since the shares are expected to rise in value. The broker-dealer's conduct is: - Acceptable if the issuer approves of the trade - Unethical and prohibited under the Uniform Securities Act - Allowable only if the shares will be listed on a national exchange - Acceptable since the broker-dealer is accepting risk that the shares may fall in value

Unethical and prohibited under the Uniform Securities Act This situation is known as withholding and is prohibited by both the Uniform Securities Act and the Securities Act of 1933. When a broker-dealer participates in a firm-commitment underwriting, it must sell the shares at the public offering price (POP) as soon as possible

According to the Uniform Securities Act, a person is not considered an investment adviser if the advice provided covers only: Universal life insurance Variable annuities Exempt securities Viatical settlements

Universal life insurance Universal life insurance is not a security. Someone who provides advice only about insurance would not be viewed as an investment adviser.

All of the following choices are TRUE regarding an agent, EXCEPT: - An agent may only sell securities that have been properly registered in a state or qualify for an exemption from registration - An agent's registration to sell securities in a given state is in effect until December 31 and then must be renewed - An agent may only solicit business in a state if both the agent and broker-dealer are registered in the state - If an agent leaves a broker-dealer to go to another broker-dealer, it is the sole responsibility of the agent to notify the Administrator

When an agent leaves one broker-dealer to work for another broker-dealer, the Administrator must be notified by the agent AND both broker-dealers. All of the other statements are correct

Under the Uniform Securities Act, the Administrator may waive the requirement that a broker-dealer maintain a bond: - When the registrant has paid the annual filing fee - When the registrant's net worth exceeds a certain amount - When the registrant's net capital exceeds a certain amount - When the broker-dealer accepts only unsolicited orders

When the registrant's net capital exceeds a certain amount Administrators are given flexibility to determine whether a bond is needed. The Uniform Securities Act states that an Administrator may waive the requirement that a broker-dealer maintain a bond if the registrant's net capital exceeds a certain amount. Investment advisers must maintain a minimum net worth